CACV 251/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 251 OF 2006
(ON APPEAL FROM HCA 2206 OF 2000)
______________________
BETWEEN
SILVER STONE DEVELOPMENT LIMITED
1st Plaintiff
LUI YUE YUN, GARY
2nd Plaintiff
and
LAU KWONG CHING, JAMES
1st Defendant
KWOK WAI TAK, EDWARD
2nd Defendant
CARRIER STOCK INVESTMENT COMPANY LIMITED
3rd Defendant
HO PUN TSUN, PETER
4th Defendant
SZETO JOSEPH
5th Defendant
ASIA GLORY HOLDINGS LIMITED
6th Defendant
and
KWOK WAI TAK, EDWARD
1st Third Party
ASIA GLORY HOLDINGS LIMITED
2nd Third Party
HO PUI TSUN, PETER
3rd Third Party
SZETO JOSEPH
4th Third Party
______________________
Before : Hon Le Pichon, Cheung JJA and Yam J in Court
Dates of Hearing : 26 – 27 April 2007
Date of Judgment : 27 April 2007
Date of Reasons for Judgment : 8 May 2007
________________________________
REASONS FOR JUDGMENT
________________________________
Hon Le Pichon JA :
1. I agree with the reasons given by Cheung JA.
Hon Cheung JA :
2. The 2nd defendant appealed against the judgment of Deputy High Court Judge Carlson in which he gave judgment in favour of the plaintiffs against, among other defendants, the 2nd defendant for the sum of $15,438,000. At the conclusion of the hearing we dismissed the 2nd defendant’s appeal with costs to the plaintiff. These are my reasons.
Facts
3. The 2nd plaintiff (‘Mr. Lui’) wholly owned the first plaintiff (‘Silver Stone’). On 11 March 1997, Mr. Lui through Silver Stone acquired 22,776,000 shares in a company called CIL Holdings Ltd. (‘CIL’), a publicly listed company on the Hong Kong Stock Exchange. Mr. Lui acquired the shares through the introduction of the 4th defendant who was a senior executive in CIL. The shares were acquired by a private placement of new shares issued by CIL. Under the terms of the placement Silver Stone was not able to sell the shares before 11 September 1997.
4. The 4th defendant told Mr. Lui that he should not view his shareholding in CIL as a long-term investment and that he should sell the shares at the expiration of the prohibition on sale. The 4th defendant offered to sell 20,000,000 shares on Mr. Lui’s behalf. These 20,000,000 shares were split into two share certificates of 10,000,000 shares each.
5. On 1 August 1997 Mr. Lui signed a Power of Attorney that was sent to him by the 4th defendant. Under this Power of Attorney the 2nd defendant was authorised to sell the shares. The 2nd defendant owned the 6th defendant. Mr. Lui gave the Power of Attorney and the share certificates to the 4th defendant who in turn gave them to the 2nd defendant.
6. The 2nd defendant then arranged for these documents to be delivered to Ms Ida Ho (‘Ms Ho’) of the 3rd defendant, a firm of stockbrokers. Ms Ho requested Silver Stone to open an account with the 3rd defendant and endorse the share certificates at the back before she would carry out any transaction on the shares. Ms Ho did not personally deal with Mr. Lui or Silver Stone. Her request was made to the 2nd defendant.
7. As a result of the request the 2nd defendant gave back to the 4th defendant the share certificates together with the 3rd defendant’s account opening forms which the 4th defendant asked Mr. Lui to execute. Mr. Lui duly executed the documents on behalf of Silver Stone together with other documents relating to the sale of the shares by Silver Stone.
8. The 3rd defendant obtained the duly executed documents and the endorsed share certificates on 11 September 1997.
The plaintiffs' case
9. It is the pleaded case of the plaintiffs that the 2nd defendant by himself or together with the 6th defendant gave instructions to the 3rd defendant to
(1)
sell 8,804,000 shares;
(2)
pay the proceeds of sale to the 6th defendant;
(3)
transfer the remaining 11,196,000 shares to another registered securities dealer for the account of the 6th defendant.
10. The 8,804,000 were sold on 11 September 1997. The proceeds of sale of the 8,804,000 shares were paid to the 6th defendant on 15 September 1997 and the transfer of shares took place on 3 October 1997. The plaintiff pleaded that the above acts constituted a conversion of the share certificates by the 2nd defendant himself or together with the 6th defendant.
The defence’s case
11. The pleaded defence of the 2nd defendant was that he was entitled to, through the 6th defendant, deal with the 20,000,000 shares as part of an arrangement that he had entered into with the 4th defendant. He admitted that he had instructed Ms Ho to deal with the 20,000,000 shares. He did not give evidence at the trial.
The judgment
12. The judge found for the plaintiff and Silver Stone against the 2nd and 6th defendants. The damages assessed for conversion were based on the value of shares as of 11 September 1997 at $0.9615 per share which amounted to $19,230,000. From this sum $3,792,000 was deducted which represented the amount paid by the 4th defendant in part settlement of the plaintiffs’ claim leaving a balance of $15,438,000. Judgment was also given against other defendants in this case. I do not need to mention them as they are not relevant for the purpose of the appeal.
The appeal
13. Mr. Chan Chi Hung S.C. who appeared at this appeal (but not below) together with Mr. Patrick Szeto as counsel for the 2nd defendant, took the short point that there was no conversion at all. In respect of the 8,804,000 shares as embodied in the first share certificate of 10,000,000 shares, he submitted that the disposal was carried out with the consent and authority of the plaintiffs. Further the plaintiffs’ cause of action should be detinue of the proceeds of sale of the 8,804,000 shares which was not relied upon by the plaintiffs.
14. In respect of the second share certificate, it (together with the first share certificate) had been registered by the 3rd defendant with the Hong Kong Securities Clearing Company Limited (‘CCASS’), by so doing the shares became a chose in action in the form of a credit entry of 10,000,000 shares in favour of the plaintiffs in CCASS. The registration system enables shares to be transacted in Hong Kong in a scriptless form. Because the shares had become a chose in action, the cause of action of conversion was no longer available to the plaintiffs.
The principles
15. It is sufficient for the purpose of this appeal to state the following principles on conversion :
1)
Conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it : Clerk & Linsell on Torts 19th Ed, para 17─07 and approved in Kuwait Airways Corporation v. Iraqi Airways Co. (No. 4 & 5) [2002] 2 AC 883 at 999.
2)
Conversion must be conversion of corporeal personal property; choses in action cannot be converted : China Everbright – IHD Pacific Ltd. v. Ch’ng Poh (2005) 5 HKCFAR 630 per Lord Millett at page 661.
Consent to deal with shares
16. The judge was acutely aware that the subject matter of the conversion claim was the two share certificates.
17. The judge found that the Power of Attorney was defective and in any event the 2nd defendant had not invoked the Power of Attorney to clothe his action with authority. There was no challenge to this finding. What was challenged was the judge’s finding that Mr. Lui did not give consent to dispose of the shares. He accepted Mr. Lui’s evidence that after he had signed the account opening documents with the 3rd defendant, he was the only one who could give instructions to the 3rd defendant to transact the shares.
18. I am not convinced that the finding can be faulted. In any event, even if Mr. Lui willingly agreed with the 4th defendant to let others such as a stockbroker deal with the shares it must be on the basis that these shares remained his and that he was entitled to and should not be deprived of the proceeds of sale.
Evidence of Ms Ho
19. Ms Ho confirmed that she received instructions only from the 2nd defendant to transact the shares. It is clear when the 2nd defendant instructed the 3rd defendant to dispose of the first 10,000,000 shares, his intention was to deprive the plaintiffs the use and possession of these shares. This is amply demonstrated by the evidence of Ms Ho whose witness statement (adopted as her evidence in chief) stated, among other things, that,
‘
15.
After I had verified Mr. Lui’s signature, I accepted Mr. Kwok’s instructions given on behalf of Silver Stone. Mr. Kwok’s instructions were to sell around 10,000,000 shares without disturbing the market price significantly.
16.
On 11 September 1997, 8,804,000 CIL shares were sold as follows (the “sell transaction ”) :-
Quantity sold Unit price (HK$)
1,052,000
0.99
450,000
0.97
860,000
0.98
1,950,000
0.96
3,600,000
0.95
892,000
1.00
8,804,000
17.
A contract note recording the sell transaction under the account of Silver Stone was issued to Silver Stone on 11th September 1997.
18.
On the morning of 12th September 1997, I received a telephone call from Mr. Kwok (i.e. the 2nd defendant). He told me the following :
(i)
Silver Stone realised that Silver Stone was not supposed to sell CIL shares within a certain period from the date of placement; and
(ii)
the bank account of Silver Stone was not ready or operative at that time and consequently the proceeds of sale could not be paid into any bank account in Silver Stone’s name.
19.
Mr. Kwok said that Silver Stone’s instructions were to book the sell transaction to the account of Asia Glory (‘i.e. the 6th defendant’). I requested an authorisation letter from Silver Stone to Asia Glory to confirm such a change.
……
22.
On the instructions of Silver Stone, as communicated through Mr. Kwok and/or Asia Glory, I did the following to change the sell transaction from the name of Silver Stone to Asia Glory :-
(i)
On 12th September 1997, I replaced the account name of Silver Stone by Asia Glory and amended the booking of the sell transaction to the account of Asia Glory under the same client code (no. 290079-029(U).
(ii)
A contract note dated 12th September 1997 was issued to Asia Glory to record the sell transaction booked to the account of Asia Glory.
(iii)
The remaining stock of CIL shares in the quantity of 11,196,000 shares was held under the name of Asia Glory.
……
’
20. It should be noted although Ms Ho issued a contract note for Silver Stone, she did not send it to Silver Stone at all. On the following day she ‘switched’ the transaction from the account of Silver Stone to that of the 6th defendant. The same account number was used but with a different client’s name.
21. In view of the closely related events of the 11 and 12 September 1997, it is extremely artificial to say that the plaintiffs’ proper cause of action should be detinue of the proceeds of sale of the 8,804,000 shares which admittedly was not relied upon by the plaintiffs. In my view a case of conversion of the first share certificate which embodied the 8,804,000 shares was properly established when the 2nd defendant instructed Ms Ho to sell about 10,000,000 shares which eventually was implemented. The diversion of the proceeds of sale merely confirmed that conversion had taken place. Mr. Chan very properly did not press the point.
Conversion of the second share certificate
22. The remaining shares were transferred by the 3rd defendant to another dealer for the account of the 6th defendant on 3 October 1997. On the face of it, by then these shares were no longer in the form of a chattel i.e. a share certificate but credit entries in CCASS in favour of the 3rd defendant.
23. However, while the pleaded case of the plaintiffs relied on the transfer of 3 October 1997, the evidence showed that conversion had taken place much earlier on 12 September 2007. The plaintiffs had in the Respondent’s Notice of Additional Grounds sought to affirm the judgment by relying on the evidence in support of the conversion by the 2nd defendant.
24. Based on Ms Ho’s evidence, the 2nd defendant’s instructions to her on 12 September 1997 which was implemented by her clearly established a case of conversion of the second share certificate as well on that date. The 3rd defendant issued a statement of account to the 6th defendant. It showed a deposit of 20,000,000 shares in the 6th defendant’s account on 12 September 1997. This was clearly part and partial of the ‘switching’ of the transaction by Ms Ho from Silver Stone’s account to the 6th defendant’s account. The ‘switching’ carried out on the instructions of the 2nd defendant clearly demonstrated that the 2nd defendant clearly intended to deprive the plaintiffs of the use and possession of the 2nd share certificate. Otherwise why should the shares not remain in Silver Stone’s account? In my view conversion had taken place on 12 September 1997.
25. Mr. Chan referred to the ‘Deposit Form’ issued by CCASS which showed that the 20,000,000 shares were deposited on 12 September 1997 at 11.23 hours. He argued that there was no evidence showing that the transfer of the 20,000,000 shares in favour of the 6th defendant took place before or after the registration. If it was done afterwards then the principle that there is no conversion of a chose of action will apply because by then the shares had become a chose of action in the form of a credit entry.
26. No issue was taken on the timing at the trial. Specifically there was no evidence that 11.23 hours was the moment when the shares became a scriptless form of rights. In any event, this argument is too fine. The registration and transfer took place all within the same day. It is purely fortuitous if one of the events took place before the other. In the absence of specific evidence that the shares had already been changed into a scriptless form, one can safely proceed on the basis that there was conversion of the second share certificate on 12 September 2007.
27. The conversion on 12 September 2007 was not specifically found by the judge but he did find that there was ‘one continuous transaction, a course of conduct, which amounts to a classic case of conversion’. In any event, I do not see any prejudice to the 2nd defendant if the evidence supported a conversion which had taken place on 12 September 2007. The 2nd defendant was fully aware that the plaintiffs were relying on the conversion of both share certificates. He was also aware of the witness statement of Ms Ho. Despite all these, he chose not to give evidence. In civil cases it is rare to find a defendant not giving evidence and mounting a defence solely on the case as presented by the plaintiff. He must have taken a deliberate decision not to appear at the trial. In my view it is most unconvincing for the 2nd defendant to say in this appeal that he chose not to give evidence because of the way the plaintiffs presented their case.
Theft
28. As the evidence is sufficient to establish a common law action of conversion, it is not necessary to discuss the issue of ‘stealing’ of the shares mentioned by the judge which in my view was only an emphatic use of language by him.
Other matters
29. Mr. Chan had out of an abundance of caution sought leave to amend the notice of appeal and Mr. Barlow, counsel for the plaintiffs, had sought leave to serve the Respondent’s Notice. This Court had considered them on a provisional basis in the appeal and would in any event grant leave to the parties as requested. The costs of the plaintiffs’ application be to the 2nd defendant while that of the 2nd defendant be to the plaintiffs.
Hon Yam J :
30. I also agree.
(Doreen Le Pichon)
(Peter Cheung) Justice of Appeal(D. Yam)
Mr. Barrie Barlow, instructed by Messrs Jesse H. Y. Kwok & Co., for the Plaintiffs
Mr. Chan Chi Hung, S.C. and Mr. Patrick Szeto, instructed by Messrs Liu, Chan & Lam, for the 2nd Defendant